Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of the new book Unbalanced: The Codependency of America and Chin…read more

Comments

Yet another incorrect analysis. To begin with, the housing and credit bubble did not "cause" the financial collapse.The financial collapse would have happened anyway, but sooner. The effect of the bubble was just to keep the music playing longer.

The real cause of the collapse was that banks ran out of borrowers. Had they stopped lending when they first could not find borrowers who would pay them back, the collapse would have occurred then. Instead, they began lending money they knew was never going to be paid back, liar loans, and when these inevitably failed, the bubble they induced collapsed.

But the bubble did not CAUSE the financial collapse, it simply delayed it.

The only thing that will fix the economy is a massive redistribution of wealth to restore demand, and then a permanent redistribution of income to prevent ever-growing inequality leading to eventual collapse, as now.

Both Romney and Obama would lead us into the abyss, Romney a bit faster. With the program proposed by either, we are doomed. Read more

"None of this can occur in a vacuum. The investment required for competitive revival and sustained recovery cannot be funded without a long-overdue improvement in US saving. In an era of outsize government deficits and subpar household saving, that may be America’s toughest challenge of all."

Enough said; no progress possible with the Yuppie-Union-Ethnic wing of the Democratic Party in charge. Read more

This article's right on the money. I'd note that, in addition to building exports, we need to work harder at attracting inbound investment. Beyond visa programs, we should probably consider something along the lines of the Special Administrative Regions that have worked in the PRC: areas such as Hong Kong or Shenzhen, where tax breaks and simplified regulation are used to attract capital and stimulate new business production. Paul Romer has suggested that a related approach be used in the US... Read more

Can Right-to-work states be considered Special Administrative Regions against the mostly unionized northern states and California? It may then just require a concerted effort to position these states more favorably.. Read more

Prof. Roach is absolutely right about the shift in focus to the other 30% as consumption is most likely to stall not only for the reasons sited but also for the demographic shift as the baby boomers approach retirement when savings more than consumption would be the natural fall out.

But the problem with growth in capital spending is better observed in the slowdown of the same in S&P 500 in Q2 (5.6%) against 8.6% last year, as forward orders in capital equipment is showing a grim picture, which impacts the forward earnings and we see manifestations of this in the guidance statements. This normally moves to cost cutting responses for a majority, not the ideal for restoring the economy to the trajectory of growth.

I'm not sure consumption will fall much as boomers age. Take a look at the data from a report on boomer consumption;http://www.mediapost.com/publications/article/181070/baby-boomers-control-70-of-the-us-disposable-in.html

Consumers ages 47 – 66 (Baby Boomers) Facts:

Control 70% of US disposable income Dominate 119 out of 123 CPG categories 40% of customers paying for wireless service 41% own Apple computers 53% are on Facebook 40% most likely to use an iPhone Over age 50 spend $7 billion online annually Purchase 62.5% of new cars Purchase 80% of luxury travel 70% show up to vote in elections Boomers spend more money each month on technology than Gen X or Gen Y – an average of $650 per month Spend most on health care Spend most on pharmaceuticals One in 7 boomers care for a parent or family member 71% of Boomers go online every day 66% of Boomers send text messages

Although the facts are all around us, even within this very article we still do not want to see it.The main problem is the excessive consumerism, an economic model that is based on constant quantitative growth, overproduction and over consumption of products we do not have a natural desire or need for, but a sophisticated marketing machinery and the subsequent social pressure forces us to keep buying them. As a result we all delved into deeper and deeper debt, we are unhappy and increasingly empty as we stuff ourselves with thing we do not need and we have no time to deal with things, health, family, proper education, real human connections, we should be dealing with and which things could make us truly happy.We still stubbornly, desperately try to rescue this fading and collapsing system instead of being happy that we are liberated from this unnatural and artificial consumer system, and that we got a chance again to return to a happy, normal, natural human life in the 21st century.If we lived within, and adapted to the natural laws governing our vast natural, integral system this planet still has enough bounty to supply double the present human population.Only we need to change our attitude and lifestyle. Read more

A clear summary, but there is one little word that gets insufficient attention in it: the word 'net.' Roach emphasizes exports as a growth engine, forgetting that the word in the economics books is 'net exports.' A difference with huge policy implications. Trade controls or other measures restricting imports from China, until something happens with their currency, would be just as effective in raising net exports as as, say, extra sales of high-tech weaponry to Saudi Arabia... Read more

Maybe we can combine two of America's problems and arrive at a solution to this problem. Firstly many companies are said to have stashed billions in off shore tax shelter to avoid the IRS and secondly infrastructure cost and import / export tariff undermine industrial competitiveness . Many foreign nations create FREE ZONES where taxes and tariff and other hindrance to competitive industrial production are eliminated. The only stipulation is that the goods produced in these zones are for export only. This concept could be used in in the USA equally well in Southern Florida , Texas, California etc. The TAX FREE INCENTIVE that these free zones offer, should attract capital held in off shore tax haven as well as solve the " profound competitive challenge " that America suffers. Read more

>>That is both logical and rational – and thus not something that the US Federal Reserve can offset with unconventional monetary easing.>>

The conclusion does not at all follow from the premise. For example, if the Fed could induce higher spending, consumers would have more income and more to money to use to pay down debt (on a macro level, spending equals income). Merely increasing inflation to target or higher would reduce the real burden of debt Read more

Robert Skidelsky
on why the right economic policies cannot work without the right public expectations.

Project Syndicate provides readers with original, engaging, and thought-provoking commentaries by global leaders and thinkers. By offering incisive perspectives from those who are shaping the world's economics, politics, science, and culture, Project Syndicate has created an unrivaled global venue for informed public debate.